The last two months of the year have featured some aggressive moves by traders in pricing in rate cuts for major central banks going into next year. The narrative is one that says traders are convinced by the disinflation trend and that policymakers can start to lower rates as the battle is already won.

Whether or not that will be the case remains to be seen but markets are led by the data and so far, there is not much reason to turn the other cheek. So, what’s priced in now for major central banks that are leaning towards interest rate cuts next year?

• Federal Reserve: -156 bps (first -25 bps in March)
• European Central Bank: -161 bps (first -25 bps in April)
• Bank of England: -141 bps (first -25 bps in May)
• Swiss National Bank: -86 bps (first -25 bps in June)
• Bank of Canada: -120 bps (first -25 bps in April)
• Reserve Bank of Australia: -53 bps (first -25 bps in June)
• Reserve Bank of New Zealand: -93 bps (first -25 bps in May)

That is some rather heavy posturing, especially when it comes to the Fed, ECB, and BOE in particular.

It is important to understand what is priced in as per the above as that sets out the market expectations at the moment going into next year. And therein lies the risk of any potential correction/retracement in pricing if inflation data does not corroborate with what traders are seeing in the first few months of 2024.

This article was written by Justin Low at www.forexlive.com.

Year after year, it bears repeating that January is seasonally the best month for gold. It is just one of those things in markets and more often than not, that trend delivers as it should. But will it do so again this time around?

I touched on that two weeks ago here in relation to a bit of a technical setback in gold at the time. But since then, gold has rallied back to sit higher in December trading, recovering from around $1,975 to around $2,050 currently. However, the key resistance from the 2020 high at roughly $2,075 continues to hold on the daily, weekly and monthly charts, and that remains the critical level to watch heading into next year.

Normally, I’d like to think that gold can bank on this seasonal tailwind 9 times out of 10. But considering the technical situation above, it’s not necessarily a given that gold will be able to shine in January trading once more. That is because if gold is to advance further, it has to pass the test of breaking the key resistance level outlined above. And that means gold needs to push up to close at record levels.

The rally in gold since November also comes on the back of a softer dollar and sliding bond yields, with the latter being a key driver in particular. That comes as the rates market steps up pricing for central bank rate cuts for next year.

The question for gold now is, will traders front run those expectations further and manifest that in the form of a technical break in January? Or will such a break require validation from the rates market?

It’s certainly an interesting one and may act as one of the first few litmus tests in gauging the market’s appetite on the central bank outlook to kick start 2024 trading.

This article was written by Justin Low at www.forexlive.com.

The long-awaited pivot by the Fed finally came in the final FOMC meeting for the year. And that sets up the stage for other major central banks to also follow suit starting next year, unless you’re the Bank of Japan of course. 2023 has been a year dominated by the outlook for major central banks and 2024 will be no different in that regard.

The only thing now is that we’re no longer talking about rate hikes but rate cuts instead. Traders have over the last two months, moved to aggressively price in rate cuts for most major central banks and that sets the backdrop heading into the new year.

It will be a push and pull between the current market pricing and any central bank pushback in the months ahead. All that before the likelihood of central banks conforming to market expectations and then slowly guiding rates back lower, as the disinflation process looks to gather pace in the year ahead.

Given such a predicament, the bond markets i.e. rates will continue to be a pivotal spot to watch – just as it had been this year. The real debate now in Q1 2024, is whether or not traders have it right to price in rate cuts as early as March to May for the likes of the Fed, ECB, and BOE in particular.

And if not, will that stem from a pushback from policymakers or more stubborn inflation data? And how much of a reversal or squeeze will we see to the recent sell the dollar, buy everything else move in markets?

On the flip side, if central banks start agreeing to traders‘ pricing, is there room for a further extension to the recent moves? Plenty of questions but only time will tell.

This article was written by Justin Low at www.forexlive.com.

It is a holiday-stricken week in markets and even with it being a busier December than usual this year, the final trading week of the year should be a quiet one with little to work with in general. There’s not much use trying to pinpoint anything to be a factor during this time as flows are thin across all asset classes.

This is more of a period to reflect back on things and get yourself prepared for the new year. So, even with there being some expiries on the board for later this week, don’t be too fussed about it. Liquidity conditions are thin so that is the more pertinent factor at play for the next few days.

For more information on how to use this data, you may refer to this post here.

I’d like to wish everyone a Merry Christmas and happy holidays! Have a wonderful festive period and rest up well for 2024. 🙂

This article was written by Justin Low at www.forexlive.com.

• We cannot pre-set timing of future policy change
• But would like to make appropriate decision while scrutinising economic developments
• In an economy where positive inflation is sustained, nominal rates will be high
• Will patiently maintain monetary easing to ensure that conditions are right for such cycle to be sustained

Once again, all of this just points towards the fact that they are pushing all the anticipation and attention to next year’s spring wage negotiations. The question then will be, can the BOJ follow through to normalise policy?

This article was written by Justin Low at www.forexlive.com.

I was expecting something quieter last week but it was busy and volatile all week. Stats agencies tend to rush out December releases so they don’t have to release as much between Christmas and New Years.

For Monday, all major western markets are closed but the FX market is open as always.

The lone releases on the calendar are from Japan, which will release November unemployment data.

Merry Christmas.

This article was written by Adam Button at www.forexlive.com.

In a recent push of back-channel diplomacy, Russian President Vlad Putin has been sending a message: He is ready to make a deal for a Ukraine ceasefire. The New York Times made the report yesterday, saying that he’s been signaling through intermediaries since at least Sept that he is open to a cease-fire that freeze the fighting along the current lines.

They cite „two former senior Russian officials close to the Kremlin and American and international officials“ who have received the message.

The report also says that some American officials say it could be a Kremlin attempt at
misdirection and a Kremlin official said the reporting is incorrect. One timeline to be aware of is the March Russian election, as Putin may want a deal beforehand.

Whenever I see a report like this, I wonder who leaked it and why. The days of real ‚journalism‘ of long over and anything like this is planted by someone, for some reason. After reading this report, I wonder if a message is being sent to Kyiv.

This article was written by Adam Button at www.forexlive.com.

The global shipping market is certainly top of mind as we celebrate a holiday weekend. Yemen continues to threaten the Red Sea but now there are worries about a wider threat to shipping. Iran said it could shut down the Gibraltar Strait, which is something that most people doubt. At the same time, the latest attack defies belief.

„The motor vessel CHEM PLUTO, a Liberia-flagged, Japanese-owned, and Netherlands-operated chemical tanker was struck at approximately 10 a.m. local time (6 a.m. GMT) yesterday in the Indian Ocean, 200 nautical miles from the coast of India, by a one-way attack drone fired from Iran,“ a Pentagon spokesperson told Reuters.

Either Iran had some very bad intel, the Pentagon is playing games or Iran is playing an incredibly stupid game.

In any case, the stakes for global shipping and the oil market continue to rise. I’ll be interested to see how crude trades in the next few days.

This article was written by Adam Button at www.forexlive.com.

• US stocks close the week mixed. Major indices rise for the 8th consecutive week
• Crude oil futures settle at $73.56
• European indices end the week with mixed results
• Nat. Economic Dir Brainard: Inflation has decreased faster than more optimistic forecasts.
• Atlanta Fed GDPNow estimate for Q4 growth 2.3% down from 2.8% last
• US new-home sales for November 0.590M vs 0.685M estimate
• UMich November US consumer sentiment final 69.7 vs 69.4 expected
• Iran paramilitary forces helping Houthis target ships -report
• US November PCE core inflation 3.2% vs 3.3% expected
• Canada October GDP MoM 0.0% versus 0.2% expected
• US durable goods orders (preliminary) for November 5.4% vs 2.2% estimate
• The GBP is the strongest and the USD is the weakest as the NA session begins
• ForexLive European FX morning news wrap: Xmas weekend subdues major currencies

The year is working to an end, but before markets slow to a trickle next week, there was one more key economic release today. The headline and core PCE data – the favored inflation quide for the Fed – was released at 8:30 AM ET, and it showed a lower than expected gain of 0.1% for the core measure (0.2% was expected) and -0.1% for the core measure (0.0% expected). The YoY measures for core and headline were also lower at 3.2% and 2.8% respectively (vs 3.3% and 3.0% expected). The decline of -0.1% was the first since April 2020.

Looking at the last 6 months of the core PCE annualized, it rose by 1.9%, which suggests the Fed is on it’s way to getting inflation down toward it’s 2.0% target.

Another key release today was the Michigan Final consumer sentiment which saw a rise to 69.7 from 69.4 preliminary and 61.3 last month. For the year, the high reached 71.6 in July, before moving down to 61.3 in November. Rates moving lower and sharply lower oil prices have put the consumer in better spirits to end the year. Also within the report is the confirmation of the 1 year inflation expectations at 3.1%. That was equal to the preliminary estimate and well off the 4.5% in November.

Not so robust today was new homes sales which came lower than expectations at 0.590M annualized rate, the lowest level since November.

In the markets, the data sent yield lower, but the longer ended up backing up and closing marginally higher. Looking at the levels at the end of day:

• 2-year yield 4.3294% down -2.0 basis points. It traded down -3.7 basis points at the low. For the trading week, the 2 year fell -12.2 basis points
• 10-year yield 3.9006%, up 0.7 basis points. It traded down -4.4 basis points at the low for the day. For the trading week, the 10-year yield fell -1.2 basis points
• 30-year yield 4.05%, up 1.9 basis points. It traded down 4.0 basis points at the low for the day. For the trading week, the 30 year yield rose 4.2 basis points

IN the forex market, the major indices are ending the day scrunched together and little changed. The CAD is ending the day as the strongest of the major currencies while the JPY is the weakest, but trading was quiet with little in the way of a definitive price trend. Most of the pairs saw up-and-down price action (or down-and-up).

US stocks closed mixed on the day but the major indices were all higher for their 8th consecutive week.

• Dow industrial average fell -0.05% on the day but managed to close up by 0.22%
• S&P rose 0.19% on the day, and closed up 0.75% for the week
• Nasdaq closed up 0.19% on the day and rose 1.21% for the week.

The small-cap Russell 2000 led the charge for the day and the week with a gain of 0.84% on the day and +2.46% for the week. In December, the index is now up 12.434% accounting for most of the index’s 15.48% gain for the year.

Forexlive will have limited service next week as we celebrate Christmas and New Years. Let me take this opportunity to thank all so you for your support in 2023. We all look forward to another profitable and helpful year in 2024.

Peace on earth. Goodwill to all.

This article was written by Greg Michalowski at www.forexlive.com.

Major US stock indices are closing the day mixed. The Dow Industrial Average is modestly lower while the S&P and NASDAQ closed higher on the day. For the trading week, all the major indices were higher for the eighth consecutive week gain.

A snapshot of the closing level shows:

• Dow Industrial Average fell -18.54 points or -0.05% at 37385.98
• S&P index rose 7.87 points or 0.17% at 4754.63
• Nasdaq index rose 29.10 points or 0.19% at 14992.96

The small-cap Russell 2000 rose 16.89 points or 0.84% at 2033.96

For the S&P index it reached a high today of 4772.94. That came within 14 points of its all-time high close of 4796.57 reached on January 3, 2022.

For the trading week:

• Dow Industrial Average rose 0.22%
• S&P index rose 0.75%
• Nasdaq index rose 1.21%

The Russell 2000 outpaced with a gain of 2.46%

With one week to go in trading for the year, the Nasdaq index is far outpacing the other indices.

• Dow Industrial Average is up 12.79%
• S&P index is up 23.84%
• Nasdaq index is up 43.25%

The Russell 2000 is trading up 15.48%

This article was written by Greg Michalowski at www.forexlive.com.